We’re back with another edition of Tech News This Week – our first in 2021! It’s only the fourth week of the year, but boy what an eventful month it has been in the world of tech and startups.
On today’s episode of Tech News This Week, small investors take on Wall Street in a battle over GameStop stocks, Cowrywise raises pre-Series A round, Alphabet shuts down Loon, StartupList Africa provides insights into VC deals in Africa and Clubhouse sets to open to the world.
Now, allow me to bring you up to speed with all the happenings in the tech and startup space from the past week.
GameStop: millions of individual investors war against Wall Street
A group of small investors from a reddit forum called WallStreetBets made the collective decision to buy the shares of a struggling video game retailer in the US, after they realised that some hedge funds had shorted the retailer’s shares.
A short is when an investor borrows the shares of a company from another investor for a fee and sells it immediately because they expect that it would fall, with the intention of buying it back at a cheaper price so that they can return it and keep the difference.
However, it became unlucky for the hedge funds and professional traders as the demand from the small investors made GameStop’s share prices to soar from $19.95 a share on January 11, 2021, peaking at $347.51 a share less than two weeks later. As the hedge funds scrambled to sell off their borrowed shares, GameStop’s share prices continued to soar resulting in huge losses for them.
This is known as a short squeeze – when traders that bet that a stock would fall are forced to buy it back at higher prices to prevent further losses.
Realising the success of their short squeeze, the small investors decided to target traders that shorted their shares in other companies including American cinema AMC Entertainment Holdings, mobile phone companies Nokia Corporation and BlackBerry and cryptocurrency Dogecoin.
To try to get hold of the situation, stock trading and investment app Robinhood implemented restrictions on many stocks including that of GameStop. This followed major backlash from US tech personalities and politicians who accused Robinhood of market manipulation in trying to protect the Wall Street traders.
Cowrywise raises $3 million in pre-Series A funding round
Nigerian fintech startup, Cowrywise, which offers savings-related products to underserved Nigerian millennial and middle class population raised $3 million in pre-Series A funding round. The round was led by first-time VC firm, Quona Capital, among other investors including Gumroad CEO Sahil Lavingia, Tsadik Foundation, and a syndicate of Nigerian angels.
Cowrywise is seeking to capture the millions of Nigerians that are not top 1% earners with savings and investment options, which are not available with traditional banks. The platform offers interest rates of up to 10-15%, which is way more than what banks offer at 3-5% and users can save and invest with as little as N100 ($0.25) in any of the 19 mutual funds on offer.
Cowrywise was founded in 2017 by Edward Popoola and Razaq Ahmed. Its current user base is 220,000 registered users, which has increased by 10900% from four years ago and the startup aims to have 10 million registered users by 2025. The investment will be put towards achieving this, while also expanding Cowrywise’s product offerings and building its investment management infrastructure.
Alphabet stops Loon internet balloon project meant to bring connectivity to underserved areas
Alphabet, Google’s parent company, has shut down its internet balloon project, Loon. The idea behind Loon, which began nine years ago, was to use a fleet of balloons to beam high-speed internet in remote parts of the world. However, Alphabet took the decision to shut down the project when it couldn’t find “a way to get the costs low enough to build a long-term sustainable business.”
Loon’s decision to end the project comes as a bit of a surprise, as just last year it secured approval from Kenya’s government to launch the service in the country. Google and Facebook have also ended their internet projects aimed to connect the next billion users. However, SpaceX and Amazon are still in the race to make this a possibility.
StartupList Africa provides insights into how market sizes influence VC deals across Africa
Data and analytics platform, StartupList Africa, published an article following the release of their top 5 VC investment destinations in Africa 2020 explaining how the markets where a startup operates influence the size of their investment from venture capitalists and what factors influence the decision of a startup to expand to a new region. Here are the key takeaways from the article:
- VCs prefer to back companies with multi-region operations across Africa with larger cheque sizes
- Nigerian, Ghanaian and Kenyan companies are more likely to be Africa-focused, expanding to new markets in other regions within Africa
- Companies from South Africa and Egypt tend to conquer their home country before expanding to other regions within and outside Africa. Reasons for this include the presence of developed startup ecosystems, a high GDP per capita and cultural barriers
- Investors like infrastructure-type startups because they can serve several market segments.
Clubhouse secures funding to open the iPhone-only app to the world
Voice-based social media app, Clubhouse, has raised a new funding round bringing it to a $1 billion valuation. Clubhouse was founded by Paul Davison and Rohan Seth in 2020. The investment will go towards opening the social app to the world. In the coming months, Clubhouse plans to launch an Android app, add new features and upgrade its infrastructure to improve its user experience.
We hope this was informative for you. See you for another episode of TNTW next week.